REPORTABLE

IN THE SUPREME COURT OF IDNIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 3510 - 3511 OF 2008

Tata Power Company Ltd. …. Appellant

Versus

Reliance Energy Limited and others …  Respondents

WITH CIVIL APPEAL NO. 4269 OF 2008

Tata Power Company Ltd. …. Appellant

Versus

Maharashtra Electricity Regulatory Commission  and others …  Respondents

WITH CIVIL APPEAL NO. 3593 OF 2008

Municipal Corporation of Greater Mumbai BEST Undertaking …. Appellant

Versus

Reliance Energy Ltd. and others …  Respondents

WITH  

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CIVIL APPEAL NO. 6098 OF 2008

Municipal Corporation of Greater Mumbai BEST Undertaking …. Appellant

Versus

Maharashtra Electricity Regulatory Commission  and others …  Respondents

AND  CIVIL APPEAL NO. 6099 OF 2008

Municipal Corporation of Greater Mumbai BEST Undertaking …. Appellant

Versus

Maharashtra Electricity Regulatory Commission  and others …  Respondents

J U D G M E N T  

S.B. SINHA, J.

INTRODUCTION  

These statutory appeals under Section 125 of the Electricity Act, 2003  

(hereinafter called and referred to for the sake of brevity as ‘the 2003 Act’)  

are  directed  against  a  common  judgment  and order  dated  6th May,  2008  

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passed  by  the  Appellate  Tribunal  for  Electricity,  New  Delhi  in  Appeal  

No.143  of  2007  and  I.A.  No.70  of  2008  whereby  and  whereunder  a  

judgment and order dated 6th November, 2007 passed by the Maharashtra  

Electricity Regulatory Commission (MERC) was set aside.   

THE PARTIES  

Whereas Appellants,  the Tata Power Company Ltd. (TPC) has two  

divisions – ‘Generation’ [TPC (G)] and ‘Distribution’ [TPC (D)]; the Brihan  

Mumbai  Electricity  and  Transport  Corporation  (BEST)  is  a  distribution  

company;  Respondent  -  Reliance  Energy  Ltd.  now  named  as  Reliance  

Infrastructure Ltd. (RInfra) is a generating as well as a distributing company  

within the meaning and provisions of the 2003 Act.   

All  of  them have  been operating  in  the  city  of  Mumbai  including  

Suburban Mumbai of having approximately 384 sq. Km in area and the city  

of Mumbai having approximately 60 sq. Km in area.  

We  may  place  on  record  that  the  aggregate  capacity  to  generate  

electricity of TPC is 1777 MW of power. The generation capacity of the  

respondent RInfra is 500 MW, but it uses its power, as per its license, only  

to serve its own consumers.

BACKGROUND FACTS  

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The following factual matrix relevant for proper appreciation of the  

legal issues arising in the present case may be noticed.  

Indisputably  TPC has  been  generating  and  supplying  electricity  to  

distribution licensees like RInfra and BEST for over a century. On or about  

5th March, 1907 ; 3rd April, 1919 ; 15th November, 1921 and 19th November,  

1953, the Bombay (Hydro-Electric)  Licence ;  the Andhra Valley (Hydro-

Electric)  Licence,  the  Nila  Mula  Valley  (Hydro-Electric)  Licence  and  

Trombay Thermal Power Electric Licence respectively were granted to TPC  

to generate and supply power in terms thereof.  

Since  1907  consumers  of  electricity  in  Mumbai  were  served  by  

distribution lisensee, BEST (for the island city of Mumbai) and since 1926  

onwards  by  RInfra  (for  suburban  Mumbai).  Indisputably  demand  of  

electricity earlier was relatively low as compared to the demand post 1990s.  

Nevertheless TPC progressively increased its capacity to meet the demand  

of both RInfra and BEST. Issues of wrongful inter se allocation between the  

various distribution licensee never really arose prior to the present scenario.

On  or  about  1st October,  1916  TPC  and  BEST  (both  Appellants  

herein) entered into an agreement in terms whereof the former agreed to  

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supply and later agreed to buy power in bulk. This agreement was renewed  

from time to time.  

Subsequently  a  distribution  licence  was  also  issued  to  BSES,  

predecessor  in  interest  of  respondent  RInfra  to  supply  power  to  the  

consumers in the suburbs of Mumbai.  Under the said license RInfra was  

authorized to purchase electricity from the bulk Licensees. Accordingly it  

began procuring bulk power from TPC generating stations according to its  

requirements from time to time, based on its consumer load (TPC had been  

the only bulk licensee for Mumbai).  Indisputably, however, no agreement in  

writing had ever been entered into by and between TPC and RInfra. It must  

be noted in  this  regard that  since  its  inception and till  a  very long time  

RInfra continued to buy its entire requirement of power from TPC.  

However in 1978 RInfra’s distribution license was amended to permit  

it to put up a generation station to supply power only to its own consumers.  

In  or  about  1995,  RInfra  commissioned  its  500MW  generating  plant  at  

Dahanu, pursuant whereto the quantum of power purchased by it from TPC  

was reduced by about 54%.  Even then RInfra had been buying nearly 42%  

of the energy generated by TPC.  It had continued to purchase its remaining  

requirements of power from TPC.

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On  or  about  1998  a  Committee  on  Review  of  Power  demand  in  

Mumbai area commonly known as the ‘Kukde Committee’ was constituted  

by the Government of Maharasthtra for the purpose of studying the techno  

commercial  feasibility of new power generation projects at Bhivpuri (500  

MW) and Palghar  (495 MW) proposed to  be set  up by TPC and RInfra  

respectively.  

It is accepted that before the said Committee, RInfra took the stand  

that it wanted to supply to its existing consumers with the power generation  

from its own proposed project instead of providing power from TPC.  The  

committee submitted its report on or about 26th May, 1998. In its report it  

recommended  for  grant  of  approval  for  both  the  said  projects.  It  was  

furthermore recommended that the additional power generated from RInfra’s  

project be used only to meet the future growth in demand arising from the  

consumers of Mumbai.  The Kukde Committee also recommended that first  

the then existing generation facility  of  TPC be fully  utilized to meet  the  

requirements  of  the current  consumers of  RInfra so as not  to disturb the  

existing technical and commercial arrangement between TPC and RInfra.    

Subsequent thereto a ‘Principles of Agreement’ (POA) was executed  

between TPC and RInfra on or about 31st January, 1998 inter alia providing  

that there be a minimum power purchase (‘off-take’) on the basis of ‘pay or  

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take’ in each financial year by RInfra on the basis of  its consumer demand  

forecast. The POA also envisaged execution of a detailed Power Purchase  

Agreement by the parties.  However, no such agreement ever fructified.   

Thereafter in 2000 the Maharashtra State Electricity Board [MSEB]  

gave consent to the Saphale power project of RInfra. Approval however was  

not granted to the Bhivpur project of TPC. Against the said order granting  

approval in favour of RInfra,  TPC filed a writ  petition being No.916 of  

2001 before the Bombay High Court on the premise that it had not approved  

TPC’s  proposal  for  the  Bhivpuri  power  project  despite  it  having  been  

submitted at an earlier point of time. It was alleged in the said petition that  

the impugned decision of the MSEB was illegal and contrary to the 1948  

Act,  which forbade it from granting sanction to any other person to generate  

electricity if the existing bulk licensee was able and willing to supply power.  

A prayer inter alia was made therein that the recommendations of the Kukde  

Committee should not be implemented.

In  response  to  the  said  petition  MSEB  withdrew  its  approval  to  

RInfra’s Power project on the ground that TPC being the bulk licensee was  

able and willing to supply power to it. On the withdrawal of the approval  

TPC too withdrew its petition filed before the High Court  

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Thereafter the 2003 Act came into force with effect from 26th May,  

2003.  Under  the  new Act  the  ‘Generating  Companies’  have  been  given  

freedom of choice to sell  power to any person or  licensee.  The Act also  

introduced  the  concept  of  ‘open  access’  which  allows  the  distribution  

licensee to source its power from any generating company. The distributors  

accordingly under the changed law do not have to depend upon state based  

generators to meet their needs.  

PROCEEDING UNDER THE ACT

RInfra  applied  to  Maharashtra  Electricity  Regulatory  Commission  

[MERC] for grant of ‘open access’ to bring in power from sources, outside  

Mumbai, to supply electricity to its consumers.   

On or about 11th June, 2004 TPC through its executive summary for  

Annual Revenue Requirement (ARRA) filed before the MERC for the year  

2003-04 insisted on having a PPA with RInfra as a condition for supply of  

power to RInfra in the future.   It, however, rejected the said demand on the  

ground that there was no ‘legal justification’ or ‘tenable reason’ for entering  

into such an agreement.  

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On or  about  23rd August,  2005 the Commission  made  Regulations  

known  as  MERC  (Terms  and  Conditions  of  Tariff)  Regulations,  2005,  

Part-D  whereof  required  all  power  purchase  agreements/arrangements  

entered into by the Distribution Licensees to be approved by MERC. The  

regulation  also  provided  that  any  amendment  to  such  an  agreement  or  

arrangement would require prior permission of the MERC irrespective of  

whether such an agreement or arrangement was approved by the commission  

or not.  

MERC, on an application,  filed  by  RInfra  for  direction  to  TPC to  

provide additional outlets, agreed to the position that distribution licensees,  

such as RInfra, can procure their power from any generating company in  

India and because of the said flexibility in the 2003 Act also directed it to  

enter into a PPA with TPC.    

On or about 18th January, 2006, BEST executed a PPA with TPC for  

purchase  of  800  MW  of  power  for  a  period  of  10  years  which  was  

subsequently revised in terms of the MERC’s order dated 7th July,  2006.  

The said PPA was submitted for approval of MERC on 27th December, 2006  

which was registered as Petition No.87 of 2006.

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On or about 12th July,  2006 a Minutes of the Meeting (MoM) was  

signed between TPC (G) and TPC (D) for allocation of power to TPC (D).  

TPC (D) indicated requirement of 500 MW power from TPC (G) in the said  

MoM.  A minor modification in the MoM was directed by MERC, pursuant  

whereto, on or about 16th March, 2006, TPC (D) entered into a PPA with  

TPC (G) for 477 MW power which was submitted for approval of MERC on  

27th December, 2006 being Petition No.87 of 2006.

RInfra filed an application for intervention before the commission in  

both the applications for approval of both the PPAs  It subsequently also  

filed its objections in the said proceedings.

It  appears from the record that  in the meanwhile  TPC proposed to  

enter  into  PPA  with  RInfra  for  its  balance  quantity  after  meeting  the  

contractual requirement of BEST for 800 MW and of TPC (D) for 477 MW  

of electricity . The offer was made by TPC to RInfra for supply of 600 MW  

which was not  accepted.   The later  instead insisted on obtaining a much  

higher quantum of power based on its consumer demand. TPC rejected the  

said demand keeping in view its continuing obligation to its own consumers  

and also those of BEST.  No consensus was therefore reached with respect  

to the said PPA between TPC-G and RInfra.    

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On or about 2nd April, 2007 MERC passed generation tariff order for  

TPC (G) for the period 2006-2007.  Commission, however, took the view  

that since PPAs had not been approved, by way of an interim arrangement, it  

would allocate available energy from TPC (G) on the basis of coincident  

peak demand of the distribution licensees.   

Aggrieved  by and dissatisfied  therewith  BEST preferred  an appeal  

before  the  Electricity  Appellate  Tribunal  on  26th April,  2007 which  was  

marked as Appeal No.41 of 2007.  Similar appeal was filed by TPC against  

the tariff order dated 2nd April, 2007 providing for allocation of TPC (G)  

capacity on the basis of coincidence peak demand on 4th May, 2007, which  

was marked as Appeal No.51 of 2007.   

By an order dated 17th May, 2007 the Appellate Tribunal in Appeal  

No.51 of 2007 filed by TPC directed MERC to decide BEST’s and TPC’s  

petitions for approval of PPA and recorded the undertaking of all parties that  

they would  not claim equities on the basis of order of MERC dated 2nd  

April, 2007.   

RInfra  in the meantime initiated a proceeding under Section 86 of  

2003 Act before MERC seeking direction against TPC (G) to allocate 762  

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MW to it and to enter into a PPA with RInfra on the said basis, which was  

marked as Case No. 30 of 2007.   

By reason of  a  judgment  and order  dated  6th November,  2007 the  

Commission  approved  PPA  between  TPC  (G)  and  BEST  and  the  

arrangement between TPC (G) and TPC (D) for supply of 800 MW and 477  

MW of power respectively with effect from 1st April, 2008.  In relation to its  

own jurisdiction it was, however, opined that it can issue direction upon the  

generating companies in terms of Section 23 of 2003 Act.   

RInfra preferred an appeal thereagainst which was marked as Appeal  

No.143 of 2007.

Two separate appeals were preferred by BEST and TPC questioning  

the interpretation of Section 23 of 2003 Act by the Commission which were  

marked as Appeal No.159 of 2007 and Appeal No. 14 of 2008 respectively.   

MERC  while  dealing  with  the  application  filed  by  RInfra  for  

continuing the tariff for financial year 2007-2008 even beyond 31st March,  

2008 till the tariff year 2008-2009, by an order dated 1st April, 2008 clearly  

indicated that for the purpose of fixing the distribution tariff of all the three  

distribution  licensees  namely,  BEST,  TPC (D)  and  RInfra,  based  on  the  

share of generation capacity of TPC (G),  it will be proceeding in the manner  

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as  directed  by  the  Commission  in  its  order  dated  6th November,  2007  

approving the PPA entered into by and between TPC (G) and BEST and  

TPC (G) and TPC (D).    

Appellate  Tribunal  thereafter  passed the impugned judgment on 7th  

April, 2008 in Appeal No.51 of 2007 filed by TPC against the tariff order  

dated 2nd April,  2007 on the submission of appellant-TPC that it  was not  

pressing for the adjustment of any amount that may be payable by RInfra to  

TPC for the period 2007-2008 in terms of the interim order of the Appelalte  

Tribunal dated 17th May, 2007.   

RInfra filed petition marked as Case No.6 of 2008 before MERC on  

17th April, 2008 seeking equitable allocation of power generation from TPC  

(G)’s generation facility under Section 23 of 2003 Act.   

ORDER OF THE COMMISSION

The  Commission  passed  a  fairly  detailed  order.   It  took  into  

consideration the factual matrix ; the nature of agreements ; submissions of  

BEST;  its  earlier  orders  ;  contentions  raised  by  BEST  in  its  original  

application as also revised petitions ; firm capacity and other details.    

It noticed that a Technical Validation Session in case No. 87 of 2006  

was held on 18th April, 2007 including justification for entering into a long  

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term contract for ten years taking into account the demand forecast during  

peak  and  off-peak  hours  and  analysis  of  other  sources  of  power  and  

availability of transmission capacity in future.   It also took into account the  

basis for arriving at 10 paise/kwh surcharge payable by TPC (G) to BEST in  

case  the  availability  of  generating  stations  of  TPC (G)  falls  below 85%  

alongwith  supporting  computations.   It  also  noticed  the  mechanism  for  

assessing the amount of compensation payable in case of termination due to  

events of default may be incorporated in the PPA.  It furthermore noticed  

that before it a public hearing was held on 17th July, 2007 wherein points  

were raised by the participants and BEST’s  response thereto.   

We  may  also  place  on  record  that  that  RInfra  did  not  make  

submissions in the technical session but did so only at the public hearing.

The Commission took up Case No.88 of 2007 and noticed the details  

of  Technical  Validation  Session  in  regard  to  internal  capacity  allocation  

from  the  generation  division  of  TPC  to  its  own  distribution  division  

including RInfra’s  intervention  application.   It  also noticed the details  in  

regard to the public hearing in the aforementioned case which was held on  

29th August,  2007.   Similarly  the  application  filed  by  RInfra  which  was  

marked as Case No.30 of 2007 was considered in great details.   

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Submissions of learned counsel appearing for the parties were noticed.  

Part IV of its judgment contains ‘the decision with reasons’.  It took into  

consideration the relevant provisions of law.  It noticed its functions under  

Section 86 of the 2003 Act as also various Regulations framed thereunder.  

It placed on record that it  had issued certain directives to the distribution  

licensees from time to time.  It opined that submission of Power Purchase  

Agreements (PPA) for approval are imperative as the objective thereof is to  

remove any uncertainty that may be faced by the consumers of a distribution  

licensee who does not have any written terms and conditions.  It opined that  

RInfra’s recalcitrant attitude in seeking approval of the terms and conditions  

of its power procurement deserved to be deprecated, whereupon a warning  

was administered.   

Submissions of BEST before the Commission were :-

(i) Ambit of approval process under Section 81(1)(b) of 2003 Act  

was required to be restricted to the price and the Commission  

had  no  power  to  reduce  the  quantum agreed  by  distribution  

licensee and the generating company under the PPA submitted  

for approval.    

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(ii) Insertion of the word “including” before the words “the price”  

makes the intention of the legislature clear that the scope of the  

power to regulate is extensive.   

(iii) Power  of  a  Regulatory  Body  is  extensive  under  Section  

86(1)(b) of the 2003 Act.  Even the generator can be subject to  

Regulations.   

(iv) Section  86(1)(b)  is  required  to  be  harmoniously  read.   For  

invoking the provisions of Section 60 of the Act, the following  

three situations must conclusively be shown to exist :

(a) any agreement has been entered into which is likely to  

cause  or  causes  an  adverse  effect  on  competition  in  

electricity industry; or  

(b) dominant  position  has  been  abused  which  is  likely  to  

cause  or  causes  an  adverse  effect  on  competition  in  

electricity industry; or

(c) a combination has entered into which is likely to cause or  

causes  an  adverse  effect  on  competition  in  electricity  

industry.  

FINDINGS OF THE COMMISSION

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The Commission discussed clause by clause of the PPAs entered into  

by and between TPC-D and BEST and TPC (G) and TPC (D) in terms of the  

MERC  Regulations.   It  took  into  consideration  each  of  the  factors  

enumerated in those PPAs to hold that they were justified for meeting the  

requirements of BEST and TPC (D), stating :-

“Based on the above analysis, the Commission is  satisfied with the data and information submitted  by BEST and TPC substantiating the requirements  of  Regulation  24  of  the  MERC  (Terms  and  Conditions of Tariff) Regulations, 2005”

In conclusion the Commission held that Section 86 (1) (b) of the 2003  

Act would be applicable only when the PPA is produced before it  for its  

approval and not otherwise.  

It also noted that it has the jurisdiction to go into the question with  

regard to the quantity of supply of electrical energy in terms of the PPAs.  

However, as the PPA took into consideration the demand of the licensee for  

the next 10 years, the stipulations contained therein were held to be  fair and  

proper.

It  was  opined  that  the  language  of  Section  60  of  the  Act  being  

restrictive,  no  cause  had  been  made  out  for  issuance  of  any  direction  

thereunder.

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It furthermore noted that Section 23 of the 2003 Act brought within its  

fold a generating company but no case had been made for issuance of any  

direction thereunder while considering the question of grant of approval of a  

long term PPA.

On the aforementioned findings the Commission approved the PPA of  

BEST and TPC (D).  It was directed :-

“(C) REL-D is directed to file long-term Power  Purchase  Agreements  for  procurement  of  power  from generating Companies  and other  sources at  the  earliest.   Also,  REL-D should submit  Power  Purchase Arrangement for procurement of power  from  its  own  generating  unit  REL-G,  for  the  Commission’s approval, within one month of the  issue of this Order.  

(D) In the past, in view of the prevailing supply  shortage situation, the Commission has invoked its  powers under Section 23 of the EA 2003, and has  directed  the  distribution  licensees  to  share  the  available generation capacity in a particular ratio,  based on the share of non-coincident peak demand  for  FY 2006-07,  and  subsequently  based  on  the  share of the coincident peak demand for FY 2007- 08,  since  the  coincident  peak  demand  data  was  available  by then.   The situation in the previous  years was compounded by the fact that there were  no  approved  PPAs  between  the  parties,  and  an  important  aspect  like  power  procurement  cannot  operate in a vacuum.  However, the Commission’s  powers to issue directions under Section 23 of the  EA  2003  are  wide  and  if  necessary  and  found  expedient,  the  Commission  may  issue  such  directions in future also,  despite the existence of  any  or  all  the  approved  PPAs,  in  case  of  any  

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shortfall in contracted capacity, in order to protect  interests  of  consumers.   During  the  transition  period, in case of shortage of supply of electricity  in the city of Mumbai, the Commission will assess  the  situation  at  the  time  of  conduct  by  the  Commission  of  Annual  Performance  Review  in  terms of Regulation 17 of the MERC (Terms and  Conditions of Tariff) Regulations, 2005 and assess  whether  any specific  direction to the distribution  licensees is required to be issued, to ensure that the  consumers  of  all  three  distribution  licensees  in  Mumbai  city  are  treated  equitably  and  for  equitable distribution of electricity.  It is clarified  that the supply in the form of generation capacity  does  not  necessarily  have  to  be  located  within  Mumbai  or  even  within  Maharashtra,  and  the  supply availability referred to here is in the context  of  firm  long-term  power  purchase  agreements  between  the  distribution  licensees  and  power  suppliers.   With  the  above  observations,  the  Commission  disposes  of  Case  No.  87  of  2006,  Case No. 88 of 2006 and Case No. 30 of 2007.”

APPELLATE TRIBUNAL

Four appeals were preferred by RInfra theregainst.   Appellants also  

preferred appeals in regard to the interpretation of Section 23 of 2003 Act.   

The Tribunal by reason of its impugned judgment dated 6th May, 2008  

disposed of the said appeals.   

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Therein apart from the factual matrix involved in each case, statutory  

provisions and the submissions made by learned counsel for the parties were  

duly noticed.  The tribunal also extracted in details the averments made by  

TPC  in  its  writ  petition  before  the  High  Court,  which  as  noticed  

hereinbefore, had ultimately been withdrawn.  

The  Tribunal  in  paragraph  93  of  the  judgment  formulated  the  

questions for its consideration which read as under :-

“93. The main question in the set of these appeals  revolves  around  the  approval  of  PPA  between  TPC(G)  and  BEST  and  arrangement  between  TPC(G)  and  TPC(D).  These  appeals  raise  the  question whether the Commission has the power to  disapprove the  PPA and allocate  the power of  a  generating  company  amongst  the  distribution  licensees  by  regulating  the  supply  in  terms  of  Section 23 of the Act?”  

The  Appellate  Tribunal  did  not  disturb  the  findings  of  the  

Commission in regard to its interpretation of Section 60 as also Section 23  

of the 2003 Act.   

It, however, held that having regard to the purpose and object of the  

Act, the Commission should have taken into consideration the need of the  

first respondent in regard to the allocation of quantity of supply

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Upon considering the provisions of the Act and the Regulations, the  

Tribunal held :

“102. We note from the above regulations that the  Commission itself recognizes an agreement or an  arrangement for long-term power procurement by  a Distribution Licensee. Regulations require prior  approval of the Commission for any change to an  existing arrangement  or  agreement for long term  procurement.  When  an  arrangement  for  power  procurement  between  TPC  and  BEST  as  also  between  TPC  and  REL  does  exist,  how  the  Commission failed to consider the claim of REL.  

103.  We  conclude  from the  aforementioned  that  the Commission has wide powers to regulate the  quantity  of  energy  that  may  be  supplied  by  a  generating  company  to  a  distribution  licensee  when both are under the jurisdiction of the same  Commission.  

104.  It  is  not  in  dispute  that  the  claims of  REL  have  not  been  considered  by  the  Commission  while approving the PPA between the TPC(G) and  BEST  and  arrangement  between  TPC(G)  and  TPC(D). It is also not in dispute that the approval  of  PPA  and  the  arrangement  has  affected  the  allocation of power to REL. The interests of REL  have been adversely affected by the Commission  in violation of the principle of natural justice. The  Commission ought to have considered the claim of  REL for allocation of power while considering the  approval of PPAs between TPC(G) and BEST and  arrangement between TPC(G) and TPC(D).  

105. In the circumstances, appeal No. 143 of 2007  is allowed and order dated November 06, 2007 of  the MERC approving the PPA of TPC and BEST  and arrangement between TPC and TPC(D) with  reference  to  allocation  of  power  to  BEST  and  

21

TPC(D) is set aside. The Commission is directed  to consider the question of approval of PPA and  the  arrangement  afresh  after  taking  into  consideration  the  claims  of  BEST,  REL  and  TPC(D). While considering the case of the parties  the Commission shall have regard to the fact that  the  consumers  of  respective  areas  have  been  bearing  the  Depreciation  and  Interest  on  Loan  elements  of  the  Fixed  Cost  of  tariff  and  also  consider all other submissions of the parties which  are permissible in the law.”

The Tribunal set aside the approval of PPA’s and remanded the matter  

to MERC for its reconsideration.  

The Tribunal, furthermore, did not interfere with the tariff order dated  

2nd April,2007 while disposing of Appeal No. 41 of 2007 filed by BEST,  

opining  that  the  period  for  which  allocation  was  made  on  the  basis  of  

consistence  peak demand had already expired

Both TPC as also BEST are before us questioning the legality and/or  

validity of the final order passed by the Appellate Tribunal as also the orders  

disposing of the interim applications.

SUBMISSIONS OF THE COUNSEL

Mr.  Jaideep  Gupta  and  Mr.  Rohington  Nariman,  learned  senior  

counsel appearing on behalf of the appellants would submit :-  

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i) The  Appellate  Tribunal  misdirected  itself  in  passing  the  

impugned  judgment  in  so  far  as  it  failed  to  take  into  

consideration that in terms of the provisions of the 2003 Act the  

Commission had no jurisdiction to interfere with the functions  

of the generating company and its jurisdiction was restricted to  

regulate  the  terms  of  the  agreement  between  a  generating  

company  and  a  distribution  company,  particularly  when  no  

fault with the approval of the PPA entered into by and between  

TPC and BEST and TPC (G) and TPC (D) was found by it.

ii) RInfra  also  filed  an  application  and  the  same  having  been  

considered in great details, it has incorrectly been held by the  

Appellate Tribunal that the principle of natural justice had not  

been complied with.

iii) Direction  of  the  Tribunal  to  the  Commission  to  take  into  

consideration contribution towards depreciation and interest on  

loan elements of fixed costs of TPC generation capacity while  

considering the claim of RInfra is without any basis inasmuch  

as :-

(a) Such direction of the Appellate Tribunal  has the effect of  

recognizing  ownership  of  consumers  over  the  generation  

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assets.   The  Act  does  not  recognize  any  such  right  of  

ownership of consumers over the generating assets.

(b)RInfra  consumers  have  only  paid  towards  costs  of  the  

generation  of  the  power  consumed  by  them,  which  the  

developer  is  entitled  to  recover  as  reasonable  cost  of  

electricity and return of his investment.

If  this  argument  is  taken  to  its  logical  conclusion,  every  

consumer  of  electricity,  whether  domestic,  industrial  or  

commercial, would claim ownership of generation plants for the  

purpose of supply of power to their respective areas.   

iv) 2003 Act must be interpreted not only having regard to history  

of legislation but also the purpose and object it seeks to achieve  

wherefor  the  Commission  and  the  Tribunal  were  not  only  

required to consider the chapter headings but also the marginal  

notes.   

v) Principles of harmonious construction of the provisions of the  

statutes having not been resorted to either by the Commission  

or by the Tribunal, they committed a serious error in opining  

that Section 23 not only controls distribution of power but also  

generation thereof.   

24

Dr. A.M. Singhvi, learned senior counsel appearing on behalf of the  

respondent, on the other hand, urged :-

(i) The factual matrix involved herein would clearly demonstrate a  

long  standing commercial  relationship  existing  between TPC  

(G) and RInfra  and/or  its  predecessor-in-interest  in  regard to  

supply  of  electrical  energy  for  the  consumers  of  suburb  

Mumbai (approximately 384 sq. kms. area) being twenty five  

lacs  in  number  out  of  which  eighteen  lacs  being  small  

individual  and  relatively  economically  weaker  sections  

consuming less than 300 units per month vis-à-vis the number  

of consumers BEST serves,  all of being in the town of Mumbai  

being approximately of an area of  60 sq.  kms.  area who are  

higher paying consumers and those of TPC (D) having 23846  

consumers,  the  Commission  must  be  held  to  have  its  

jurisdiction rightly to allocate supply of power to the licensees  

in greater public interest.  

(ii) 2003 Act does not contemplate exclusion from the purview of  

the  Commission’s  jurisdiction  of  all  matters  relating  to  

generation but also covers regulation of several aspects thereof  

including tariff of generation companies, sale of electricity by  

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generators, maintaining efficient supply, securing the equitable  

distribution  of  electricity,  promotion  competition,  preventing  

abuse  of  dominant  position  by  generating  companies,  

preventing advese effect on competition in electricity industry  

etc.   

(iii) Regulation of tariff  would bring within its  fold inter alia  the  

quantity that a generator supplies to a distribution licensee or a  

consumer  and  various  interconnected  and  interrelated  issues  

which have a bearing on generation of electricity.   

(iv) It is not that the 2003 Act merely empowers the Commission to  

fix only the generating tariff and to otherwise adopt a hands off  

attitude towards the generation company on the alleged ground  

that the Commission did not have any other jurisdiction over  

the generating companies.   

(v) The principle of ‘purposive interpretation’ should be resorted to  

for interpreting a statute regulating generation, distribution and  

supply  of  electrical  energy  which  is  in  short  supply  in  the  

country wherefor  endeavour  should be made to ascertain  the  

object and purport not only by reading one of the provisions of  

the Act  but  the  preamble thereof  as  also the other  important  

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provisions,  namely  Sections  2(70)  ;  7  ;  10  ;  11  ;  23  ;  60  ;  

86(1)(b) and 86(1)(f) of the 2003 Act.  

(vi) Only because the generation of electricity was taken outside the  

purview of the licensing regime, the same would not mean that  

a  generator  of  an electrical  energy would be entitled  to  free  

wheel  its  entire  supply  to  any  person  it  likes  and  in  any  

quantity it likes.  

(vii) The chapter  heading and the marginal  note  of  Section 23 of  

2003 Act cannot be resorted to for its interpretation as it is well  

settled that marginal notes do not control the meaning of the  

section.   

(viii) Chapter  heading  should  not  be  treated  to  be  containing  

provisions  dealing  with  a  particular  subject  matter  as  rigid  

compartment and it is not uncommon that a provision, rule or  

regulation relatable to one chapter is in fact interpreted, applied  

or related to other chapters of the same Act.    

(ix) The term “supply” having been defined in Section 2(70) of the  

2003  Act,  in  any  event,  the  jurisdiction  of  the  Commission  

would clearly cover a situation where the power of regulation in  

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relation to supply and ensuring efficient thereof are required to  

be regulated.  

(x) Neither Section 23 nor Section 86(1)(b) of 2003 Act provides  

‘any  context  to  the  contrary’  for  the  purpose  of  application/  

interpretation  of  term  “supply”  as  defined  in  Section  2(70).  

Context of Section 86(1)(b) read with Section 23 and Section  

2(70) of the Act if construed with the preamble thereof, upon  

applying the principle of purposive interpretation, it would be  

evident that the said provisions constitute an invisible seamless  

web creating a context which, far from being to the contrary,  

mutually reinforces each other and points only in one direction,  

namely the necessity to regulate supply of electrical energy not  

only  at  the  hands  of  the  licensees  but  also  the  generating  

companies.  

(xi) The basic and overriding purpose of 2003 Act being ensuring  

generation  of  electricity  and  efficient  equitable  distribution  

thereof  with  the  interest  of  the  consumers  in  mind  the  

generating  companies  cannot  be  permitted  to  act  outside  the  

purview  of  Regulations  of  a  Regulatory  Commission  and  

consequently  it  must  be  held  that  the  Commission  has  full  

jurisdiction not only to regulate tariff and price issues but also  

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distribution  of  quantum  of  electricity  and  other  necessary  

concomitance thereto.    

(xii) The  word  “regulate”  reflects  a  statutory  mandate  of  all  

encompassing jurisdiction.  

(xiii) TPC being in a public utility service, it is required to act fairly,  

equitably and not in an arbitrary fashion.

(xiv) The principle  of harmonious construction may be resorted to  

only  in  a  case  where  there  exists  any  contradiction  or  

overlapping as in this case the provisions of Sections 11 and 23  

apply in different fields, there is absolutely no necessity to take  

recourse to the said principle.   

(xv) As  TPC  (G)’s  acts  and  omission,  despite  its  status  as  

commercial  entity,  constitutes  an  abuse  of  its  dominant  

position, which cannot be permitted to take rccourse to “cherry  

picking” of RInfra’s high end consumers.   

ISSUES ARISING HEREIN

Although before us a large number of contentions had been raised, the  

core questions, which arise for our consideration, are :-

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(A) Whether  recourse to  Section 23 of  the  Act can be taken for  

issuance of any direction to the generating company?

(B) Whether  the  Commission  while  applying  the  provisions  of  

Section 86(1)(b) of the Act could also take recourse to Sections  

23 and 60 thereof?

(C) Whether  equitable  allocation  of  power  generated  by  a  

generating company is permissible?

LEGISLATIVE HISTORY

1910 ACT

The  earliest  statute  relating  to  control  of  generation  of  supply,  

distribution  of  electrical  energy  which  governed  the  field  was  Indian  

Electricity Act, 1910 (1910 Act).  Part-II of the said Act provided for supply  

of energy.  Section 3 thereof provided for grant of licence to any person to  

supply energy in any specified area and also to lay down or place electric  

supply-lines for the conveyance and transmission of energy.  

However, after coming into force the 1948 Act, such licences could be  

granted only upon consulting the State Electricity Boards constituted and  

incorporated under Sections 5 and 12 thereof.  Section 22-B in the 1910 Act,  

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which was inserted by Act 32 of 1959, provided for power to control the  

distribution and consumption of energy stating :-

“Section 22B -  Power to  control  the distribution  and consumption of energy  

(1) If the State Government is of opinion that it is  necessary or  expedient  so to do,  for  maintaining  the supply and securing the equitable distribution  of energy, it may by order provide for regulating  the  supply,  distribution,  consumption  or  use  thereof.

(2)  Without  prejudice  to  the  generality  of  the  powers conferred by sub-section (1) an order made  thereunder may direct the licensee not to comply,  except  with  the  permission  of  the  State  Government, with—

(i) the provisions of any contract, agreement or  requisition  whether  made  before  or  after  the  commencement  of  the  Indian  Electricity  (Amendment) Act, 1959, for the supply (other  than the resumption of a supply) or an increase  in the Supply of energy to any person, or

(ii) any requisition for the resumption of supply  of energy to a consumer after  a period of six  months, from the date of its discontinuance, or

(iii)  any  requisition  for  the  resumption  of  supply of energy made within six months of its  discontinuance,  where  the  requisitioning  consumer was not himself the consumer of the  supply at the time of its discontinuance.”

1948 ACT

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The 1948 Act was enacted to provide for the rationalization of the  

production  and  supply  of  electricity  and  generally  for  taking  measures  

conducive to electrical  development.   Section 43 conferred power on the  

Board to enter into arrangements for purchase or sale of electricity under  

certain conditions. Section 43-A provided for terms, conditions and tariff for  

the sale of electricity generated by it to any other person with the consent of  

the competent government or governments.   

Section 44 of 1948 Act also placed restrictions on establishment of  

new  generating  stations  or  major  additions  or  replacement  of  plant  in  

generating stations except with the previous consent in writing of the Board,  

to establish or acquire a new generating station or to extend or replace any  

major unit of plant or works pertaining to the generation of electricity in a  

generating station.   

1998 ACT

The  Parliament  enacted  Electricity  Regulatory  Commissions  Act,  

1998 (for short, “the 1998 Act”) to provide for the establishment of a Central  

Electricity  Regulatory  Commission  and  State  Electricity  Regulatory  

Commissions,  rationalization  of  electricity  tariff,  transparent  policies  

regarding  subsidies,  promotion  of  efficient  and  environmentally  benign  

policies and for matters connected therewith and incidental thereto.   

32

In terms of the 1998 Act, the Regulatory Commission was conferred  

with the power to determine tariff for all sales by a generating company in  

terms  of  Section  22(1)(c)  thereof.   It  further  required  in  line  with  the  

provisions of the 1910 Act as also the 1948 Act, for the State Commission  

constituted  thereunder  to  regulate  investment  approval  for  generation,  

transmission, distribution and supply of electricity to require the licensees to  

formulate prospective plans and schemes for the promotion of generation,  

transmission,  distribution  and  supply  of  electricity  and  to  devise  proper  

power  purchase  and procurement  process,  and to  regulate  the  assets  and  

properties  related  to  the  electricity  industry,  etc.   The  1998 Act  did  not  

envisage  de-licensing  of  generating  companies  as  in  terms  thereof  the  

following requirements were to be complied with on the establishment and  

operations of a generating station:

(a) Setting up a generating station requires approval of a Board (u/s  

44 of Electricity Supply Act, 1948)

(b) Sale of Power by a generating company of any person requires  

approval of the competent government (u/s 43A of Electricity  

Supply Act, 1948)

(c) Investment  approval  for  generating  was  regulated  by  the  

ERCA.

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(d) The tariff for all supply of power by a generating company was  

determined by the Regulatory Commission.

(e) The  generating  company  was  also  regulated  from  the  

perspective of transmission grid stability and operation, which  

is necessary on the technical side.

Section 22(1)(c) of the 1998 Act reads :-  

“Section 22 - Functions of State Commission  

(1) Subject to the provisions of Chapter III,  the  State  Commission  shall  discharge  the  following  functions, namely:--

(c) to regulate power purchase and procurement  process  of  the  transmission  utilities  and  distribution utilities including the price at which  the power shall be procured from the generating  companies,  generating  stations  or  from  other  sources for transmission, sale, distribution and  supply in the State;”

2003 ACT  

The  2003  Act  was  enacted  to  consolidate  the  laws  relating  to  

generation, transmission, distribution, trading and use of electricity.  

Before noticing the relevant provisions of the 2003 Act, we may place  

on record the statement of objects and reasons for enactment thereof, the  

relevant portion whereof reads as under :-

34

“3. With  the  policy  of  encouraging  private  sector participation in generation, transmission and  distribution  and  the  objective  of  distancing  the  regulatory responsibilities from the Government to  the  Regulatory  Commissions,  the  need  for  harmonizing and rationalizing the provisions in the  Indian  Electricity  Act,  1910,  the  Electricity  (Supply) Act, 1948 and the Electricity Regulatory  Commissions  Act,  1998 in  a  new self  contained  comprehensive legislation arose.   Accordingly,  it  became necessary  to  enact  a  new legislation  for  regulating  the  electricity  supply  industry  in  the  country  which  would  replace  the  existing  laws,  preserve its core features other than those relating  to the mandatory existence of the State Electricity  Board  and  the  responsibilities  of  the  State  Government and the State Electricity Board with  respect to regulating licensees.  There is also need  to provide for newer concepts like power trading  and open access.  There is also need to obviate the  requirement of each State Government to pass its  own  Reforms  Act.   The  Bill  has  progressive  features and endeavours to strike the right balance  given the current  realities  of the power sector in  India.   It  gives  the  State  enough  flexibility  to  develop  their  power  sector  in  the  manner  they  consider  appropriate.   The  Electricity  Bill,  2001  has been finalized after extensive discussions and  consultations  with  the  States  and  all  other  stake  holders and experts.   

4. The main features of the Bill are as follows:-

(i) Generation  is  being  delicensed  and  captive generation is being freely permitted. Hydro  projects  would,  however,  need  approval  of  the  State Government and clearance from the Central  Electricity  Authority  which  would  go  into  the  issues  of  dam  safety  and  optimal  utilization  of  water resources.  

35

(ii) There  would  be  a  Transmission  Utility at the Central as well as State level, which  would  be  a  Government  company  and  have  the  responsibility  of  ensuring  that  the  transmission  network is developed in a planned and coordinated  manner  to  meet  the  requirements  of  the  sector.  The load dispatch function could be kept with the  Transmission Utility or separated.  In the case of  separation the load dispatch function would have  to  remain  with  a  State  Government  organization/company.”

Section 2 is the interpretation section.   

Section 2(4) defines “appropriate Commission” to mean the Central  

Regulatory Commission referred to in sub-section (1) of section 76 or the  

State  Regulatory  Commission  referred  to  in  section  82  or  the  Joint  

Commission referred to in section 83, as the case may be.   

“Consumer” has been defined in section 2(15) to mean any person  

who  is  supplied  with  electricity  for  his  own  use  by  a  licensee  or  the  

Government or by any other person engaged in the business of supplying  

electricity to the public under this Act or any other law for the time being in  

force  and  includes  any  person  whose  premises  are  for  the  time  being  

connected  for  the  purpose  of  receiving  electricity  with  the  works  of  a  

licensee, the Government or such other person, as the case may be;

36

Section 2(17) defines “distribution  licensee”  to mean :-  

(17)  "distribution  licensee"  means  a  licensee  authorised  to  operate  and  maintain  a  distribution  system for supplying electricity to the consumers in  his area of supply;

(23) "electricity" means electrical energy--

(a)  generated,  transmitted,  supplied or  traded for  any purpose; or

(b) used for any purpose except the transmission of  a message;

(28)  "generating  company"  means  any  company  or  body corporate or association or body of individuals,  whether  incorporated  or  not,  or  artificial  juridical  person,  which  owns  or  operates  or  maintains  a  generating station;

(38) "licence" means a licence granted under section  14;

(39) "licensee" means a person who has been granted  a licence under section 14;

(50) "power system" means all aspects of generation,  transmission, distribution and supply of electricity and  includes one or more of the following, namely:--

(a) generating stations;

(b) transmission or main transmission lines;

(c) sub-stations;

(d) tie-lines;

(e) load despatch activities;

(f) mains or distribution mains;

37

(g) electric supply-lines;

(h) overhead lines;

(i) service lines;

(j) works;

(57) "regulations" means regulations made under this  Act;

(71) "trading" means purchase of electricity for resale  thereof and the expression "trade" shall be construed  accordingly

Section  3  provides  for  the  National  Electricity  Policy  and  Plan  

enabling the Central Government to prepare the National Electrcity Policy  

and  tariff  policy,  in  consultation  with  the  State  Government  and  the  

Authority for development of the power system based on optimal utilization  

of resources such as coal, natural gas, nuclear substances or materials, hydro  

and renewable sources of energy.   

Part III of the Act provides for generation of electricity.  Section 7  

enables  a  generating  company  to  establish,  operate  and  maintain  a  

generating  station  without  obtaining  a  licence  if  it  complies  with  the  

technical standards relating to connectivity with the grid referred to in clause  

(b) of Section 73.   

38

Section 8, however, provides that a generating company intending to  

set up a hydro-generating station shall prepare and submit to the Authority  

for  its  concurrence,  a  scheme  estimated  to  involve  a  capital  expenditure  

exceeding such sum, as may be fixed by the Central Government from time  

to time by Notification.   

Section  9  provides  for  captive  generation.   Section  10  lays  down  

duties  of  generating  companies,  sub-sections  (1)  and 2  whereof  reads  as  

under :-

“10 - Duties of generating companies  

(1) Subject to the provisions of this Act, the duties  of  generating  company  shall  be  to  establish,  operate and maintain generating stations, tie-lines,  sub-stations  and  dedicated  transmission  lines  connected  therewith  in  accordance  with  the  provisions of this  Act or the rules or regulations  made thereunder.

(2) A generating company may supply electricity  to any licensee in accordance with this Act and the  rules  and  regulations  made  thereunder  and  may,  subject to the regulations made under sub-section  (2)  of  section  42,  supply  electricity  to  any  consumer.”

The  power  to  issue  directions  to  the  generating  companies  by  the  

Appropriate  Government  and  appropriate  Commissions  are  laid  down in  

sub-section (1) of Section 11 of the 2003 Act stating :-

39

“Section 11 - Directions to generating companies  

(1) The Appropriate Government may specify that  a  generating  company  shall,  in  extraordinary  circumstances operate and maintain any generating  station  in  accordance  with  the  directions  of  that  Government.

Explanation:--For the purposes of this section,  the  expression  "extraordinary  circumstances"  means  circumstances  arising  out  of  threat  to  security of the State, public order or a natural  calamity or such other circumstances arising in  the public interest.”

Part IV of the 2003 Act provides for licensing.   

Section 12 prohibits any person to transmit electricity, or distribute  

electricity; or undertake trading in electricity, unless authorized to do so by a  

licence issued under Section 14 or exempt under Section 13 of the 2003 Act.  

Section 14 provides for grant of licence by the Appropriate Commission to  

any person – (a) to transmit electricity as a transmission licensee ; or (b) to  

distribute electricity as a distribution licensee; or (c) to undertake trading in  

electricity  as  an electricity  trader  in  any area  as  may be specified in the  

licence.   

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Section 15 of the 2003 Act provides for procedure for grant of licence.  

Section  16  provides  for  conditions  of  licence.   Section  15  mandates  the  

licensee not to do certain things.  The provisions for amendment of licence is  

contained  in  Section  18  thereof.   Section  19  provides  for  revocation  of  

licence.  Section 20 provides for sale of utilities of licensees.  Section 21  

provides for vesting of utility in purchaser.   

Section 23, which is relevant for our purpose, reads as under :-

“23 - Directions to licensees  

If  the Appropriate Commission is  of  the opinion  that  it  is  necessary  or  expedient  so  to  do  for  maintaining  the  efficient  supply,  securing  the  equitable distribution of electricity and promoting  competition,  it  may,  by  order,  provide  for  regulating supply, distribution, consumption or use  thereof.”

Section 24 provides for suspension of distribution licence and sale of  

utility.   

Part V deals with transmission of electricity.   

Section 60 provides for market domination.  It reads :-

“The  Appropriate  Commission  may  issue  such  directions as it considers appropriate to a licensee  or  a  generating  company  if  such  licensee  or  generating company enters into any agreement or  

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abuses  its  dominant  position  or  enters  into  a  combination which is likely to cause or causes an  adverse  effect  on  competition  in  electricity  industry.”

Section 86 provides for functions of State Commission, clauses (a),  

(b) and (f) of sub-section (1) whereof, read as under :-

“Section 86 - Functions of State Commission  

(1)  The  State  Commission  shall  discharge  the  following functions, namely:--

(a) determine the tariff for generation, supply,  transmission  and  wheeling  of  electricity,  wholesale,  bulk or retail,  as  the case may be,  within the State:

PROVIDED  that  where  open  access  has  been permitted to a category of consumers  under  section  42,  the  State  Commission  shall  determine  only  the  wheeling  charges  and surcharge thereon,  if  any,  for  the  said  category of consumers;

(b)  regulate  electricity  purchase  and  procurement  process  of  distribution  licensees  including the price at which electricity shall be  procured  from  the  generating  companies  or  licensees  or  from  other  sources  through  agreements  for  purchase  of  power  for  distribution and supply within the State;

.. … …

(f)  adjudicate  upon  the  disputes  between  the  licensees and generating companies and to refer  any dispute for arbitration;

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Section 181 of 2003 Act empowers the State Commissions to make  

regulations, consistent with the provisions of the Act and the rules generally  

to carry out the provisions of the Act.

Pursuant  to  or  in  furtherance  of  the  aforementioned  regulations  

making  powers,  the  Commission  has made regulations  known as  MERC  

(Terms and Conditions of Tariff) Regulations, 2005.   

Regulation 7 deals with determination of generation tariff.

Regulation  22  provides  for  Power  procurement  guidelines  to  the  

following terms :

“22.1  A  Distribution  Licensee  shall  follow  the  guidelines contained in this Part with respect to: (a) Procurement of power under any arrangement  or  agreement  with  a  term or  duration  exceeding  one year (i.e. long-term power procurement); and (b) Procurement of power under any arrangement  or agreement with a term or duration less than or  equal  to  one  year  (i.e.  short-term  power  procurement).”

Regulation 23 mandates the distribution of licenses to prepare long  

term power procurement plan which should fulfill the requirements specified  

thereunder.

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We  may  now  notice  that  Regulation  24  provides  for  approval  of  

power purchase agreement/arrangement.

PRELIMINARY OBSERVATIONS  

Before  adverting  to  the  rival  contentions  of  the  parties  we  may  

observe :

The Tribunal committed a factual error in so far as it failed to notice  

that no long term PPA exists between TPC (G) and RInfra.  It furthermore  

was not correct in opining that the Commission had not considered the claim  

of RInfra while approving the arrangements between TPC (G) and TPC (D),  

despite the fact that REL (RInfra) not only filed objections to the application  

for  grant  of  approval  of  PPA  filed  by  the  parties  herein,  it  also  filed  

independent application; took part in the deliberations and all its contentions  

had been considered.  On what basis the Tribunal opined that the decision of  

the Commission is in violation of the principle of natural justice is beyond  

anybody’s  comprehension.   It  furthermore  took  into  consideration  an  

irrelevant  fact,  namely  that  the  Commission  in  determining  the  issue  

between the parties  should have regard to the fact  that the consumers of  

respective areas have been bearing the ‘depreciation’ and interest on loan  

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elements of the Fixed Cost of tariff.    It furthermore without assigning any  

reason dismissed the appeals being Nos. 159 of 2007 and 14 of 2008.     

INTERPRETATION OF THE STATUTORY PROVISIONS  

A  statute,  as  is  well  known,  must  be  construed  having  regard  to  

Parliamentary intent.  For the said purpose it is open to a court not only to  

take into consideration the history of the legislation including the mischief  

sought to be remedied but also the objects and purpose it seeks to achieve.  

The 1910 Act provided for licensing of all the operators who were  

engaged  not  only  in  transmission  and  distribution  of  electricity  but  also  

generation thereof.  Indisputably ‘electricity’ comes within the purview of  

the public utility service.  It, in the modern context, is a necessary item for  

the purpose of better living of the citizens.  After India became independent  

and with the advent of industrialization as also for other reasons, the benefit  

of  availing  consumption  of  electrical  energy  not  only  remained  with  the  

urban  areas  but  also  extended  to  rural  areas.   With  growth  in  

industrialization as also trade and commerce in the country, its requirements  

increased  many  fold.   With  a  view to  provide  for  effective  control  and  

regulation of generation,  distribution and supply of electrical  energy each  

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State  was  separately  required  to  set  up  Electricity  Boards  wherefor  the  

Parliament  enacted  1948  Act.   For  all  intent  and  purport  the  Boards  

constituted under the 1948 Act were to exercise monopoly power.  The 1910  

Act  also  made provisions  for  purchase  of  electricity  undertakings  by the  

State.   

Section 3 of 1910 Act, as amended in 1959, and Sections 43-A and 44  

of 1948 Act clearly go to show that the private generating companies were  

brought under an extensive control as not only for extension of its existing  

plants but also for setting up or acquiring new plants, the previous consent of  

the concerned State and the Board became necessary.

The private generating companies, in terms of the provisions of the  

statutes governing the field were, thus, subjected to an extensive control by  

the States.  As the years rolled by, the activities of the Boards grew by leaps  

and bounds.   The Boards,  for all  intent  and purpose,  acquired monopoly  

status.  In terms of Sections 46 and 49 of the 1948 Act, they were entitled to  

fix grid tariff and to make provisions for earning reasonable profits.   

It was, however, noticed that in the absence of any competition from  

the private operators, the Boards were not in a position to provide for the  

desired  optional  results.   It  was  in  the  aforementioned  premise  and  

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particularly having regard to the liberalized economic policy of the Central  

Government since 1991 necessities were felt for providing greater room for  

the  private  generating  companies.   For  the  aforementioned  purposes,  the  

Central  Government  as  also  the  State  Governments  adopted  liberalized  

polices.  They invited private operators to generate electrical energy not only  

through conventional  modes,  namely, Hydro Electric  Power and Thermal  

Power  but  also  generation  of  power  by  using  other  raw-materials,  for  

example gas, naptha etc.   

The 1998 Act, as notice hereinbefore, did not envisage delicensing of  

generating companies.  It provided for approval by the Board therefor.  It  

provided for imposition of other conditions for generation of electricity.   

 The  Parliament  by  making  2003  Act  clearly  acknowledged  the  

necessity of providing a greater room for generation of electrical energy so  

as to enable the country to meet its requirements.  It is only in that view of  

the matter, the liberalization policy of the State provided for de-licensing of  

the generating companies.   

In terms of the said provision, the activities of the erstwhile licensees  

of  power  generation  on  the  one  hand  and  those  of  transmission  and  

distribution  in  electricity  on  the  other  were  separated.   The  concept  of  

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trading was brought  thereunder  for  the  first  time.   Trading  activities  are  

permitted subject to grant of licenses.  Distribution of electricity was defined  

as licensed activity in terms whereof a holder of a license can supply power  

to a person for his own use.  A licensee for the activity of transmission could  

own the wires/transmission lines  constituting the part  of  their  grid  but  it  

could  not  engage  itself  in  the  activity  of  buying  or  selling  the  electrical  

energy.  

The core question which, therefore, arises for consideration is as to  

whether despite the Parliamentary intent of giving a go-bye to its licensing  

policy  to  generating  companies,  whether  through  imposing  stringent  

regulatory measures the same purpose should be allowed to be achieved?

The  Act  is  a  consolidating  statute.   It  brings  within  its  purview  

generation, transmission, distribution, trade and use of electricity.  Whereas  

generation  of  electricity  has  been  brought  outside  the  purview  of  the  

licensing regime,  the transmission,  distribution and trading are subject  to  

grant of licence are kept within the regulatory regime.   

The  statute  provides  for  measures  to  be  taken  which  would  be  

conducive  to  development  of  electricity  industry.   Measures  are  also  

required to be taken for promoting competition which would also mean the  

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development of electricity industry.  It, indisputably, provides for measures  

relating to the protection of interest of consumers and supply of electricity to  

all areas.  The generating companies, however, despite de-licensing, do not  

enjoy the monopoly status.  They are subject to rationalization of electricity  

tariff.   The  preamble  envisages  ensuring  transparent  policies,   policies  

regarding  subsidies,  promotion  of  efficient  and  environmentally  benign  

policies,  constitution  of  Central  Electricity  Authority  Regulatory  

Commissions  and  establishment  of  Appellate  Tribunal  and  for  matters  

connected therewith or incidental thereto.   

Electricity is not an essential commodity within the meaning of the  

provisions of the Essential Commodities Act, 1955 or any other statute.  It  

is, however, in short supply.  As the number of consumers as also the nature  

of consumption have increased many fold, the necessity of more and more  

generation of electrical energy must be given due importance.   

The preamble of the 2003 Act,  although speaks of development of  

electricity  industry  and  promotion  of  competition,  it  does  not  speak  of  

equitable distribution of electrical energy.  The statutes governing essential  

and  other  commodities  in  respect  whereof  the  State  intends  to  exercise  

complete  control,  provide  for  equitable  distribution  thereof  amongst  the  

consumers.

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For the purpose of deciphering the object and purport of the Act, it is  

well  known,  the  Court  can  look to  the  statement  of  objects  and reasons  

thereof.  One of the principal purposes which had been taken note of for  

enactment of 2003 Act by the Parliament is  the poor performance of the  

State Electricity Boards.  The Government intended to have an independent  

body for determining the tariff  which was required to be carried on in a  

professional and independent manner.  It was felt that cross-subsidies have  

reached to unsustainable levels.  The enactment provides for establishment  

of the Electricity Regulatory Commissions.   

Encouraging private sector participation, generation, transmission and  

the distribution of electricity became the statutory policy.   The Parliament  

felt the need of harmonizing and rationalizing the provisions of the Act.  De-

licensing of generation as also grant of free permission of captive generation  

is one of the main features of the 2003 Act.  It is clearly provided that only  

hydro-generating projects would need the approval of the State Commission  

and the Central Electricity Regulatory Authority.  It recognized the need of  

prohibiting transmission licensees.   It  also for the first  time provided for  

open access in transmission from the outset.   It  even provides where the  

distribution licensee proposes to undertake distribution of electricity for a  

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specified area within the area of supply through another person, that person  

shall not be required to obtain separate licence.  

In terms of Section 7 of the 2003 Act, all persons are permitted to  

establish,  operate  and maintain  a  generating  station.   It  can,  in  terms  of  

Section  62(1)(a)  of  the  2003  Act,  supply  electricity  to  any  licensee  i.e.  

distribution  licensee  or  trading  licensee.   The  2003  Act  permits  the  

generating  company  to  supply  the  electricity  directly  to  a  trader  or  a  

consumer.   In  terms of  Section 42(2)  of  the 2003 Act even for  the said  

purpose no tariff is required to be determined.   

The primary object, therefore, was to free the generating companies  

from the shackles  of  licensing  regime.     The 2003 Act  encourages free  

generation  and  more  and  more  competition  amongst  the  generating  

companies and the other licensees so as to achieve customer satisfaction and  

equitable distribution of electricity.  

The generation company, thus, exercises freedom in respect of choice  

of site and investment of the generation unit; choice of counter-party buyer;  

freedom from tariff regulation when the generating company supplies to a  

trader or directly to the consumer.  

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If de-licensing of the generation is the prime object of the Act, the  

courts while interpreting the provisions of the statute must guard itself from  

doing so in such a manner which would defeat the purpose thereof.  It must  

bear in mind that licensing provisions are not brought back through the side  

door of Regulations.  

DIRECTION TO GENERATING COMPANIES

This brings us to the interpretation of Section 11 of the 2003 Act.  In  

terms of 1910 Act  the State  Government  was the licensing authority.   It  

alone, therefore, in the said capacity was entitled to issue directions.  Sub-

section  (1)  of  Section  11  of  2003  Act  empowers  the  Appropriate  

Government  to  issue  directions  but  such direction  can  be  issued only  in  

extraordinary circumstances as stated in the explanation appended thereto  

i.e. arising out of threat to security of the State, public order or a natural  

calamity or such other circumstances arising in the public interest.   

Interpretation clause contained in Section 2 of the Act prefixes the  

words  “unless  the  context  otherwise  requires”.   The  word  “supply”  has  

separately been used even for generation and distribution.  Thus, although a  

broad meaning may be assigned to the said term but the same must be held  

to be ‘subject to the context’.  The word “supply” used in Section 23 of 2003  

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Act  for  bringing  in  efficient  supply  would  mean  regulate  and  

consequentially licensing in respect of the generating company.  

For  the  aforementioned  purpose  it  cannot  be  given  a  general  or  

popular meaning denoting supplier  and receiver.   Once it  is  held that by  

reason thereof the Parliament aimed at ensuring the supply, the purported  

object it sought to achieve by enacting Section 7 would lose its purpose.  It,  

however,  does not mean that  Section 23 itself  becomes unworkable as it  

would  not  be  possible  to  secure  equitable  distribution  and  supply.   The  

agreement of distribution (PPA) being subject to approval, indisputably the  

Commission  would  have  the  public  interest  in  mind.   It  has  power  to  

approve a MOU which subserves the public interest.  It, while granting such  

approval  may also take into consideration the question as to whether  the  

terms to be agreed are fair and just.  

SECTION 23 – DIRECTION BY THE COMMISSION

Could a generating company, despite Section 11 be subjected to any  

direction by the Commission in terms of Section 23 of the 2003 Act?

Whether  chapter headings and marginal  notes should be taken into  

consideration for the purpose of interpretation of the main provision are the  

questions?

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Chapter headings and the marginal note are parts of the statute.  They  

have also been enacted by the Parliament.  There cannot, thus, be any doubt  

that it can be used in aid of the construction.  It is, however, well settled that  

if  the  wordings  of  the  statutory  provision  are  clear  and  unambiguous,  

construction of the statute with the aid of ‘chapter heading’ and ‘marginal  

note’ may not arise. It may be that heading and marginal note, however, are  

of a very limited use in interpretation because of its necessarily brief and  

inaccurate nature.  They are, however, not irrelevant.  They certainly cannot  

be taken into consideration if they differ from the material they describe.  

We may notice some authorities on the subject at the outset.

In Bennion on Statutory Interpretation, Fifth edition, Section 255, it is  

stated  :  “where  general  words  are  preceded  by  a  heading  indicating  a  

narrower scope it is legitimate to treat the general words as cut down by the  

heading.”,   

Section 256 of the said treatise deals with “sidenote, heading or title”,  

wherein it is stated :-

“Use in interpretation – Like anything else in what  Parliament  puts  out  as  its  Acts,  a  sidenote  or  heading  is  part  of  the  Act,  despite  dicta  to  the  contrary.   It  may  therefore  be  used  by  the  

54

interpreter.   ‘No  judge  can  be  expected  to  treat  something which is  before his  eyes  as  though it  were not there.  However, the sidenote or section  heading  is  of  very  limited  use  in  interpretation  because  of  its  necessarily  brief  and  therefore  possibly inaccurate nature.”    

It was commented :-

“If  the sidenote contradicts  the text  this  puts the  interpreter on inquiry; but the answer may be that  the  drafter  chose  an  inadequate  signpost,  or  neglected to alter it to match an amendment made  to the clause during the passage of the Bill.  Such  facts are outside the knowledge of the interpreter,  who must therefore adopt a rule not depending on  them.  

… ….. …..

Modern  judges  believe  it  proper  to  consider  sidenotes or headings to sections, and gather what  guidance they can from them.  Thus Vinelott J said  that  the  sidenote  to  the  Income and Corporation  Taxes  Act,  1970   s  488  (repealed)  was  a  permissible and useful guide that threw a light on  the  mischief  at  which  the  section  was  aimed.  Upjohn LJ gave a precisely accurate indication of  the role of the sidenote when he said :

‘While the marginal note to a section cannot  control the language used in the section , it  is  at  least  permissible  to  approach  a  consideration of its general purpose and the  mischief at which it is aimed  with the note  in mind.’

The  italicised  words  accurately  show  the  relationship  of  this  component  to  the  informed  interpretation  rule.   Earlier  inconsistent  dicta,  a  

55

selection  of  which  are  now considered,  must  be  treated as erroneous.”  

In Interpretation of  Statutes,  Fourth  Edition,  by Vepa P.  Sarathi  at  

page 347 it is stated :-

‘The heading of a chapter may be referred to in  order  to  determine  the  sense  of  any  doubtful  expression  in  a  section  ranged  under  it.  But  it  cannot control unambiguous expressions.

It is true that a heading cannot control the  interpretation  of  a  clause  if  its  meaning  is  otherwise  plain  and  unambiguous,  but  it  can  certainly  be referred to  as  indicating  the  general  drift of the clause and affording a key to a better  understanding of its meaning.”

Similarly  in  Principles  of  Statutory  Interpretation  by  Justice  G.P.  

Singh, upon noticing the conflicting opinion, the learned Author states:-

“ The view is now settled that the Headings or  Titles prefixed to section or group of sections can  be  referred  to  in  construing  an  Act  of  the  Legislature.”  

Chapter heading, therefore, is a permitted tool of interpretation.  It is  

considered to be a preamble of that section to which it pertains.  It may be  

taken recourse to where an ambiguity exists.  However, where there does not  

56

exist any ambiguity, it cannot be resorted to.  Chapter heading and marginal  

note, however, can be resorted to for the purpose of resolving the doubts.  

It furthermore appears that there is a drift from the old value in recent  

times.   

We may notice  that  the  English  decisions  whereupon reliance  had  

been placed by this Court in various judgments and in particular Chandler  v.  

DPP,  [ (1962)  All ER 142 ], str considered to be a no longer a good law in  

the country of origin, as stated in Bennion on Statutory Interpretation Fifth  

Edition at page 748 :-  

“ Superseded dicta Phillimore LJ referred to a  ‘general  rule  of  law’  to  the  effect  that  marginal  notes must be disregarded ‘upon the principle that  those  notes  are  inserted  not  by  Parliament  nor  under  the  authority  of  Parliament,  but  by  irresponsible  persons’.   In  fact,  with  occasional  triffling exceptions, the marginal  notes in an Act  are not inserted by parliamentary clerks - or even  drafters  –  but  are  contained either  in the  Bill  as  introduced or in new clauses added by amendment.  Furthermore,  the  clerks  are  not  ‘irresponsible  persons’,  but  are  subject  to  the  authority  of  Parliament.   Avory  J.  said  that  ‘marginal  notes  form no part of a statute’.  He added : ‘They are  not  voted  on  or  passed  by  Parliament,  but  are  inserted after the Bill has become law’.  This is not  the  case  however.   The  entire  Act  is  passed  by  Parliament and is entered, or deemed to be entered,  in  the  Parliament  Roll  with  all  non-amendable  components included.  These components mostly  

57

remain  unchanged throughout  the  passage of  the  Bill.  They are certainly not inserted after the Bill  has become law.  Willes J. after asserting that the  marginal notes and other ‘appendages’ are not part  of an Act, said of any Act, passed after the practice  of actually engrossing Acts on the Parliament Roll  ceased in 1849:  ‘The Act, when passed, must be  looked at just as if it were still entered upon a roll,  which  it  may  be  again  if  Parliament  should  be  pleased  so  to  order;  in  which  case  it  would  be  without these appendages…’”       

It  is,  however,  evident  from  the  decision  of  this  Court  in  Indian  

Aluminium Company v.   Kerala State  Electricity  Board,  [  AIR 1975 SC  

1967 ], that the modern trend is to take into consideration the marginal note.  

It could be used, as has been held, in R.S. Joshi, Sales Tax Officer, Gujarat  

and Ors. v. Ajit Mills Limited and Anr., [ (1977) 4 SCC 98 ].  Relevance of  

marginal note was also taken note of in Ramesh Chand and Ors. v. State of  

U.P. and Ors., [ (1979) 4 SCC 776 ].   

In  Bombay  Dyeing  and  Mfg.  Co.  Ltd. v.  Bombay  Environmental  

Action Group and Ors., [ (2006) 3 SCC 434 ], marginal note has been taken  

into consideration as an intrinsic part of the Section.   In Deewan Singh and  

Ors. v.  Rajendra Pd. Ardevi and Ors.,  [ 2007 (1) SCALE 32 ] it has been  

held that the marginal note may be taken into consideration for the purpose  

of  proper  construction  of  the  provision  although  there  is  no  ambiguity.  

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Sarabjit Rick Singh v.  Union of India (UOI),  [ (2008) 2 SCC 417 ] follows  

Deewan Singh (supra).   

SUPPLY – CONTEXTUAL MEANING

It  was  submitted  by  the  respondents  that  in  any  event  the  word  

‘supply’ as used in Section 23 should be given the same meaning as is given  

to it in Section 2(70) of the Act i.e. the sale of electricity to a licensee or  

consumer.  Accordingly by its very nature, supply would have a supplier and  

a receiver and any direction which is aimed at ensuring or regulating supply  

by its very nature would have to be directed to both the supplier and the  

receiver.  

However,  when the question  arises  as  to  the  meaning of  a  certain  

provision  in  a  statute,  it  is  not  only  legitimate  but  proper  to  read  that  

provision in its context.

The legal  principle  is  that  all  statutory  definitions  have to  be  read  

subject  to  the  qualification  variously  expressed  in  the  definition  clause  

which  created  them  and  it  may  be  that  even  where  the  definition  is  

exhaustive inasmuch as the word defined is said to mean a certain thing, it is  

possible  for  the  word  to  have  some what  different  meaning  in  different  

sections of the Act depending upon the subject or context.  That is why all  

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definitions  in  statutes  generally  begin  with  the  qualifying  words  ‘unless  

there  is  anything  repugnant  to  the  subject  or  context’.   [See  Whirlpool  

Crporation  v.  Registrar of Trade Marks, Mumbai and  others, { (1998) 8  

SCC 1 ;  Garhwal Mandal Vikas Nigam Ltd.  v.  Krishna Travel Agency,{  

(2008)  6  SCC 732 }  and  National  Insurance  Co.  Ltd.   v.   Deepa Devi,  

[ (2008) 1 SCC 414 } ].   

Accordingly  the  word  ‘supply’  cotnained  in  Section  23  refer  to  

‘supply to consumers only’ in the context of Section 23 and not to supply to  

licensees.   On the other hand, in Section 86(1)(a) ‘supply’ refers to both  

consumers and licensees.  In Section 10(2) the word ‘supply’ is used in two  

parts of the said Section to mean two different things.  In the first part it  

means  ‘supply  to  a  licensee  only’  and  in  the  second  part  ‘supply  to  a  

consumer only’.  Further in first proviso to Section 14, the word ‘supply’ has  

been used specifically  to mean ‘distribution of electricity’.  In Section 62(2)  

the word ‘supply’ has been used to refer to ‘supply of electricity by a trader’.  

To assign the same meaning to the word “supply” in Section 23 of the  

Act,  as  is  assigned  in  the  interpretation  section,  it  is,  in  our  opinion,  

necessary to take recourse to the doctrine of harmonious construction and  

read the statute as a whole.  Interpretation of Section indisputably must be  

premised on the scheme of the statute.  For the purpose of construction of a  

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statute and in particular for ascertaining the purpose thereof, the entire Act  

has to be read as a whole and then chapter by chapter, section by section and  

word by word.  

{See  Reserve  Bank  of  India,  v.  Peerless  General  Finance  and  

Investment Co. Ltd, [ (1987) 1 SCC 424 ] ;  Peerless General Finance and  

Investment Co. Ltd. v.  Reserve Bank of India,  [ (1992) 2 SCC 343 ] and  

National Insurance Co. Ltd. v. Swaran Singh, [ (2004) 3 SCC 297 ]. }

Thus, in a case where interpretation of a Section vis-à-vis the scheme  

of  the  Act,  the  purport  and object  of  the  legislation,  particularly  having  

regard o the mischief it  seeks to remedy; the chapter heading as also the  

marginal note, in our opinion, are relevant.   

PURPOSIVE CONSTRUCTION  

Legislation has an aim, it seeks to obviate some mischief, to supply an  

inadequacy, to effect a change of policy, to formulate a plan of government.  

That aim, that policy is not drawn like nitrogen, out of air ; it is evidenced in  

the  language  of  the  statute,  as  read  in  the  light  of  other  external  

manifestations of purpose.  [See Justice Frankfurtir, Some Reflextions on the  

reading of Statutes,  47 Columbia LR 527, at page 538 (1947) ;  Union of  

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India  v. Ranbaxy Laboratories Ltd. and others ; { (2008) 7 SACC 502 }and  

D. Purushotam Reddy and another vs.  K. Sateesh,  {(2008) 11 SCALE 73}].

ANALYSIS

In this case the relevance of chapter heading is more for the purpose  

of arriving at a conclusion as to whether the arrangement and scheme of the  

statute is such it can be said be relatable to different types of licensees on the  

one hand and a generating company which does not require a licence on the  

other.  If by reason of a provision of a statute the generating companies are  

excluded  from  the  licensing  provisions,  one  of  the  principal  tool  of  

interpretation is that the mischief which was sought to be remedied  may not  

be brought back by a side door. It has to be borne in mind that if the licence  

raj is brought back through the side door or regulations seeking to achieve  

the same purpose which the Parliament intended to avoid, there would be a  

possibility of mis-interpretation and mis-application of statute.  

For the said purpose even the history of the Act may be noticed. It is  

from this point of view that the ambiguity, if any, must be found out.   

If  the  marginal  note  in  this  case  is  given  effect  to  it  would  come  

within the scheme.  If it is not given effect to and plain meaning is resorted  

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to it will produce anomaly with the purpose and object of the Act.  Chapter  

IV in which Section 23 occurs deals with a particular category of licensees.  

Almost all the sections preceding Section 23 as also Section 24 refer to the  

licensees and the licensees alone.  None of the sections in the said chapter  

refers to generating companies.  

Furthermore  in  the  scheme  of  the  Act  wherever  regulation  of  

generating companies is necessary the same has been provided for.  Section  

11 and Section 60 provide for adequate indication in this behalf.  They deal  

with extra ordinary situations.  

Transmission of electrical energy does not come within the purview of  

section 23.  Trading therein also does not per say come within the purview  

thereof.  

It  has  to  be  construed  harmoniously  with  other  powers.   Had  the  

power of the Commission to issue direction in regard to supply of electrical  

energy was so pervasive, Section 23 could have been appropriately worded..  

It could have been placed in an appropriate chapter and not in the chapter  

dealing  with  licensing.   There  was  also  no  necessity  to  bring  out  

transmission of electricity from the purview thereof as the same would also  

come  within  the  purview  of  supply  of  electricity.   If  transmission  of  

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electricity can be kept outside the purview of direction by the Commission,  

there is no reason why generation thereof would not be.   

We, therefore, of the opinion that Section 23 of the 2003 Act does not  

contemplate issuance of any direction by the Commission.  

SECTION 86 – FUNCTION OF THE COMMISSION

Section 86 provides for the functions of the Sate Commission, clause  

(a)  of  sub-section  (1)  whereof  empowers  it  to  determine  the  tariff  for  

generation,  supply,  transmission  and  wheeling  of  electricity.   Clause  (b)  

empowers  it  to  regulate  electricity  purchase  and  procurement  process  of  

distribution licensees.  Inevitably it speaks of PPA.  PPA may provide for  

short term plan, a mid term plan or a  long term plan.  Depending upon the  

tenure of the plan, the requirement of the distribution licensee vis-à-vis its  

consumers  ;  the  nature  of  supply  and  all  other  relevant  considerations,  

approval thereof can be granted or refused.  

While  exercising  the  said  function  necessarily  the  provisions  of  

Section 23 may not be brought within its purview.  While even exercising  

the said power the State Commission must be aware of the limitations thereo  

as  also  the  purport  and  object  of  the  2003  Act.   It  has  to  take  into  

consideration  that  PPA  will  have  to  be  dealt  with  only  in  the  manner  

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provided  therefor.   The  scheme  of  the  Act,  namely  the  generation  of  

electricity is outside the licensing purview and subject to fulfillment of the  

conditions laid down under Section 42 of the Act a generating company may  

also supply directly  to consumer  wherefor no licence would be required,  

must be given due consideration.    The said provision has to be read with  

Regulation 24.  In regard to the grant of approval of PPA the procedures laid  

down in Regulation 24 are required to be followed.  While exercising its  

power of ‘Regulation’ in relation to purchase of electricity and procurement  

process of distribution, it  is not permissible for the Commission to direct  

allocation  of  electricity  to  different  licensees  keeping  in  view  their  own  

need.  Section 86(1)(b) read with Section 23 if interpreted differently would  

empower the Commission to issue direction to the generating company to  

supply electricity to a licensee who had not entered into any PPA with it.  

We  do  not  think  that  such  a  contingency  was  contemplated  by  the  

Parliament.   A generating company, if  the liberalization and privatization  

policy is  to  be given effect  to,  must  be held to  be  free  to  enter  into  an  

agreement  and  in  particular  long  term  agreement  with  the  distribution  

agency,  terms  and  conditions  of  such  an  agreement,  however,  are  not  

unregulated.   Such  an  agreement  is  subject  to  grant  of  approval  by  the  

Commission.   The  Commission  has  a  duty  to  check  if  the  allocation  of  

power is reasonable.  If the terms and conditions relating to quantity, price,  

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mode of supply the need of the distributing agency vis-à-vis the consumer,  

keeping in view its long term need are not found to be reasonable, approval  

may not be granted.   A generating company has to make a huge investment  

and assurances given to it that subject to the provisions of the Act he would  

be free to generate electricity and supply the same to those who intend to  

enter into an agreement with it.  Only in terms of the said statutory policy,  

he makes  huge investment.   If  all  his  activities  are  subject  to  regulatory  

regime, he may not be interested in making investment.   The business in  

regard to allocation of electricity at the hands of the generating company  

was the subject matter of the licensing regime.  While interpreting the statute  

it must be borne in mind that such a mechanism should not come back.   

That,  however,  would  not  mean  that  the  generating  company  is  

absolutely free from all regulations.  Such regulations are permissible under  

the 2003 Act ; , one of them being fair dealing with the distributor.  Thus,  

other  types  of  regulations  should  not  be  brought  in  which  were  not  

contemplated under the statutory scheme.  If he is exercising his dominant  

position, Section 60 would come into play.  It is only in a situation where a  

generator  may  abuse  or  misuse  his  position  the  Commission  would  be  

entitled to issue a direction.  The regulatory regime of the Commission, thus,  

can be enforced against  a generating company if  the condition precedent  

therefor becomes applicable.  

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INTERRETATION OF SECTION 86

Section 86(1)(b)  provides for regulation of electricity  purchase and  

procurement process of distribution licensees.  In respect of generation its  

function  is  to  determine,  the  tariff  for  generation  as  also  in  relation  to  

supply; transmission and wheeling of electricity.  Clause (b) of sub-section  

(1) of Section 86 provides to regulate electricity purchase and procurement  

process of distribution licensees including the price at which the electricity  

shall be procured from the generating companies or licenses or from other  

sources  through  agreements.   As  a  part  of  the  regulation  it  can  also  

adjudicate  upon disputes between the licensees and generating companies in  

regard to the implementation, application or interpretation of the provisions  

of the said agreement.  

There  are  some  provisions  which  provide  for  regulation  etc.  of  

generation and/or generating companies, namely –  

(i) Section 10(3)  

(ii) Section 11(2)

(iii) Section 23

(iv) Section 33(2)

(v) Section 55(2) and (3)

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(vi) Section 60

(vii) Section 62(1), (2) and (95)

(viii) Section 81(1)(a), (b), (e), (f) and sub-section (2)

(ix) Section 128(1), (6), (7) and (8)

(x) Section 129

(xi) Section 181

The Parliament thought it necessary to provide for specific provisions  

for  the  purpose  of  regulating  the  functions  of  the  generating  companies,  

those provisions are special provisions vis-à-vis the other general provisions  

which take within its abridge the function of the distributor, transmitter and  

trader.

In  U.P.  Power  Corporation  Ltd.   v.  NTPC  and  others,  [2009  (3)  

SCALE 620] this Court opined :

“There  cannot  be any doubt  whatsoever  that  the  word ‘regulation’ in some quarters is considered to  the unruly horse.”  

 [See also  Bank of New South Wales v.  Commonwealth {(1948) 76  

CLR 1} and Prasar Bharti and others  v.  Amarjeet Singh and others, { 2007  

(2) SCALE 486 } ].

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We  may  notice  a  comparative  chart  of  the  provisions  of  Section  

22(1)(c) of 1998 Act and Section 86(1)(b) of the 2003 Act.   

Section 22(1)(c) of the 1998 Act Section 86(1)(b) of the 2003 Act to  regulate  power  purchase  and  procurement  process  of  the  transmission  utilities  and  distribution utilities including the  price at which the power shall be  procured  from  the  generating  companies, generating stations or  from  other  sources  for  transmission,  sale,  distribution  and supply in the State;

regulate  electricity  purchase  and  procurement process of distribution  licensees  including  the  price  at  which  electricity  shall  be  procured  from  the  generating  companies  or  licensees  or  from  other  sources  through agreements for purchase of  power  for  distribution  and  supply  within the State;

A  critical  comparison  of  the  said  provisions  would  show that  the  

agreements for purchase of power referred to therein is directly linked with  

the procurement process of distribution license either from the generating  

companies or licensees or from other sources.  Regulation of transmission  

has  been  taken  out  of  the  regulatory  provision.   The  words  ‘through  

agreements for purchase of power’ inserted in Section 86(1)(b) of the 2003  

Act  bring  about  a  significance  distinction.   It  is  neither  irrelevant  nor  

immaterial as contended by Dr. Singhvi.  

A PPA may be a long term one or a short term one.  Regulations have  

been made by the Commission by making MERC (Terms and Conditions of  

Tariff) Regulations, 2005.

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Short term power procurement refers to an agreement for procurement  

of power for a period of less than one year.  Regulation 23.1 requires the  

distribution licensee to prepare a five year plan inter alia upon taking into  

consideration  the  sources  for  procurement  thereof.   Regulation  24.1  

mandates obtaining of prior approval of the Commission therefor.  Approval  

by  Commission  is  granted  upon  examining  the  process  of  procurement  

having  regard  to  the  factors  specified  in  Regulation  24.2.   It  is  in  the  

aforementioned context grant of approval of the PPA by and between TPC  

(G) on the one hand and BEST and TPC (D), on the other hand, necessitated.  

The  proposal  of  TPC  (G)  that  RInfra  should  enter  with  it  a  long  term  

agreement assumes significance.  

RE: HARDSHIP OF RIinfra  

For the purpose of interpretation and/or application of a statute, this  

Court cannot base its decision on any hypothesis.  Construction of a statute,  

save and except some exceptional cases, cannot be premised on the hardship  

of  a  party  which  may  be  suffered  by  one  of  the  licensees.  Enabling  

provisions are made for entering into a free contract.   

A company incorporated under the Companies Act being not a citizen  

of India does not have any fundamental right to carry on business in terms of  

70

Article 19(1)(g) of the Constitution of India; its shareholders and directors  

have.  Even otherwise in a free market economy right to enter into contract  

by and between two private parties are not to be discouraged in absence of  

any statute or statutory regulation.  The intendment of Parliament in making  

statute is clear and unambiguous.  Requirements of a licensee and/or sheer  

number of its consumers, in our opinion, would be wholly irrelevant for the  

purpose of the construction of a statute.  

RELEVANCE OF SECTION 60

 It is, in the facts and circumstances of this case, not necessary for us to  

consider an extraordinary situation where the Commission may exercise its  

jurisdiction both under Section 86(1)(b) and Section 60 simultaneously.  We  

are also not concerned with any extra ordinary situation.   Assuming that  

such a contingency may take place and having regard to Sections 23 & 60  

of the Act while issuing direction to the licensee company the right of a  

generating company may also be affected., but we are not concerned with  

such a situation.   The Commission which is an expert body has not found  

that any such case has been made out for exercise of its jurisdiction in that  

behalf.  

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The  2003  Act  even  permits  the  generating  company  to  supply  

electricity to a consumer directly.   For the said purpose what is necessary is  

to comply with the provisions of the Act , Rules and the Regulations.

Section 14 of the Act categorically provides for grant of licnece to any  

person who is transmitting electricity or distributing supply or undertaking  

trading therein, indisputably, however, the generator of an electrical energy,  

although is not subject to the grant of licence but while supplying electrical  

energy to a distributing agency, in turn would be subject to approval and  

directions of the Commission.  

CONCLUSION

1) Activities of a generating company are beyond the purview of  

the licensing provisions.  

2) The Parliament therefor did not think it necessary to provide for  

any regulation or issuance of directions except that which have  

expressly been stated in the Act.  

3) Section 21 occurs in the chapter of “licensing” under which the  

generating companies would not be governed.   

4) As almost all the sections preceding Section 23 as also Section  

24 talk about licensee and licensee alone, the word “supply” if  

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given its  statutorily  defined meaning  as contained in  Section  

2(70) of the Act would lead to an anomalous situation as by  

reason  thereof  supply  of  electrical  energy  by  the  generating  

company to the consumers directly in terms of Section 12(2) of  

the Act as also by the transmission companies to the consumers  

would also come within its purview.   

5) In  a  case  of  this  nature  the  principle  of  exclusion  of  the  

definition  of  Section  by  resorting  to  “unless  the  context  

otherwise requires” should be resorted to.

6) Section 86(1)(a) of the 2003 Act clearly shows the para meters  

of  supply  for  the  purpose  of  Regulation,  viz.  supply  of  

electricity by the distribution company to the consumer.

7) If  regulatory  clause  is  sought  to  be  applied  in  relation  to  

allocation  of  power,  the  same  would  defeat  the  de-licensing  

provisions.  Generating companies have the freedom to enter  

into  contract  and  in  particular  long  term  contracts  with  a  

distribution  company  subject  to  the  regulatory  provisions  

contained in the 2003 Act.   .  

8) PPA for a long term is essential for increasing and decreasing  

the  capacity  of  generation  of  electricity  by  the  generating  

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company, which purpose by the 2003 Act must be allowed to  

be achieved.   

9) Duration of the contract in regard to supply of electricity by and  

between TPC (G) and RInfra prior to coming into force of the  

contract  is  of  no  consequence,  particularly  when  no  written  

long term or short term contract had been entered into by and  

between them.

10) Fairness or  otherwise of the supply of electricity to different  

distribution  companies  being  outside  the  jurisdiction  of  the  

Commission, the same by itself cannot be a ground for bringing  

back the licence raj, which is not contemplated by the Act.   

11) For true and correct  construction of the Act,  the principle of  

harmonious construction is required to be resorted to.   

12) Recourse  to  the  principle  of  purposive  construction does  not  

militate against the conclusion reached by us and as indicated  

hereinbefore in fact in terms of the said doctrine the purpose  

and object of the Parliament must prevail over a narrow and/or  

literal interpretation, which would defeat the purpose and object  

of the Act.

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13) Section  86(1)(b)  of  the  2003  Act  clearly  shows  that  the  

generating  company  indirectly  comes  within  the  purview  of  

regulatory jurisdiction as and when directions are issued to the  

distributing companies by the appropriate Commission but the  

same  would  not  mean  that  while  exercising  the  said  

jurisdiction, the Commission will bring within its umbrage the  

generating company also for the purpose of issuance separate  

direction.   

For  the  aforementioned  reasons,  the  impugned  judgment  of  the  

Tribunal cannot be sustained.  It is set aside accordingly.  The appeals are  

allowed with costs.  Counsel’s fee Rs. 1,00,000/- (Rupees one lakh) in each  

appeal.  

……….……………………J.   [ S.B. Sinha ]

……………..………………J.  [Dr. Mukundakam Sharma ]

New Delhi May 06, 2009   

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